Investment Column: Profits climb at Action

Click to follow
The Independent Online
INVESTING in information technology can be a risky business. Today's leading-edge hardware rapidly becomes tomorrow's low-margin commodity product. Software can be overtaken by the competition in the blink of an eye. Services companies are struggling to find enough staff. And most of these stocks trade on multiples that would discourage all but the most enthusiastic investor.

For a low-risk way into the industry, have a look at Action Computer Supplies. It distributes computer products, selling almost every product and accessory imaginable to business customers through its catalogue and, increasingly, via the internet. Distribution may be a low-tech business, but growing demand for IT has given Action an enviable growth record.

That was confirmed in results for the half year to February, released yesterday, which showed pre-tax profits rising 34 per cent to pounds 3.1m. Although there was some contribution from acquisitions, Action's underlying profits still rose by a healthy 27 per cent.

This looks set to continue: Britain's IT market, now worth pounds 7bn, will carry on growing. What's more, the "mail order" slice of that market - actually, most orders are made over the phone - is expected to take a rising proportion of the total. Henry Lewis, Action's ebullient chairman, is aiming for annual sales of pounds 500m.

One slight worry is Action's latest move into computer services through a series of deals, the latest of which, the pounds 7.9m acquisition of UK re- seller SHL, was announced yesterday. Mr Lewis argues that support services and training can be packaged and sold in the same way as the latest PC. But it's harder to keep an eye on a travelling consultant than a box sitting in a warehouse.

Still, even if the services side fails to take off, Action looks attractive. Henderson Crosthwaite, the broker, expects full-year profits of pounds 14m putting the shares, up 10.5p yesterday to 241p, on a forward p/e ratio of 17. Compare that to Computacenter, the distributor which is likely to come to the market on a multiple of about 25, and the shares look cheap. Buy.